There is no single short essay or article that can explain all of capitalism in detail. Karl Marx wrote three entire volumes of Das Kapital and still had more to write by the time of his passing (the third volume wasn’t exactly finished, either). But there is a central ‘core mechanic’ in the system of capitalism, that many people are oblivious to, or simply overlook or underappreciate it’s function. This essay hopes to shine a light on that mechanic, and raise the general awareness of the capitalist system and the capitalist mechanics and operations (“follow the money”) going on around you.
What is Capitalism?
There is a common misconception from liberals, especially those on the right, that capitalism is some core part part of human existence. “The Romans bought and sold things!” and other inanities. This sort of bad faith argumentation (which often confuses commerce with capitalism) usually involves liberals making up their own separate and new definitions of capitalism, deliberately ignoring and failing to address that which the actual, original Marxist argument is about. Because you will not find “capitalism” used in any of Adam Smith’s writings, as the word is one that was popularized by Marx. The very term capitalism has a specific meaning which Marxists refer to, regarding the human relations (the rules and customs we treat each other by) to the means of production (the ways in which humans make and produce shit). This description of capitalism is not some eternal, intrinsic human nature, but rather a human-constructed system, deliberately upheld and maintained, that has only been in place for a few hundred years.
Capitalism is, fundamentally, about the underlying property relations at the base of society (wut? — hang on). Claims on ownership granting ‘special rules.’ So kind of like how in feudalism — the King got a bunch of special rules that only applied to him (sometimes from God, that said peasants had to work certain days ‘for their lord,’ and give the king that portion of their harvest each week), and later some of those rules would extend (in part) to the nobility and aristocracy, but never to the serfs and peasants (the king would never spend a day labouring for each of them). Similarly, how in ancient Rome, masters got one set of rules and slaves got a whole different set of rules — well Marxists make the argument that we’ve still got a two-tiered ruleset still in place today.
Marxists see that there are two distinct groups in a capitalist society, when you ‘draw a line in the sand’ around this human-property relationship. This is the divide of that two-tiered ruleset, where you have one big, large group of people (what Marx calls a class of people) have to live and play by the basic set of rules, while another, smaller group (or class) of people who get (or more specifically, give themselves) a much more favourable ruleset — with some ‘bonus special rules’ that help them out extra, and give them additional power and authority that members of the much larger group don’t have the same access to, or ability to wield. Even moreso, Marxists make the argument that these ‘bonus rules,’ and the fact the rules are written by the smaller group, are actually detrimental and damaging to the larger group, in order to amplify and calcify the benefit provided to the smaller group.
So let’s separate and talk about these two groups. The first group is probably the one that you and I are a part of, as is the overwhelming majority of humanity. This group is a class of people that acquire and grow their wealth — that is to say, make their money, earn their income, pay the bills, etc — primarily through doing work — or specifically, labour. This can be and lots of different things: flipping burgers, writing code, building houses, transporting goods, mowing lawns, serving drinks, office accounting, dockyard loading, etc. Lots of different things — but how they all get paid is largely the same. They perform this task, or set of tasks, over a certain amount of time, and they receive money from the person (or people) who owns the business at a fixed rate of pay, multiplied by the amount of time that they spent working. So you make X dollars per hour (called a wage), or you make Y dollars per month or per year (called a salary), or you get paid Z dollars for doing a specific job that will take a specific amount of time. But the point is that you work for your dollars, and it is someone else — someone who is not required (and rarely expected) to be doing the same work that you are doing for their income — who is the one that pays you. If you belong to this class, which must do labour for income, Karl Marx identifies this group as the PROLETARIAT, and (probably) you and (definitely) I would be among them (proles).
Now there’s a lot of interesting characteristics to talk about with this relationship — but one of the obvious ones is the mathematical limit to wealth growth through labour (there is only so much you, or anyone, can do in a day). If you are getting paid at X dollars an hour, then there’s only so many hours in a day that you can work, (and lets face it, you need to sleep to some extent, and there’s likely transit and other life obligations involved in there too) and there is a clear upper limit to how quickly you can grow your wealth. Yes, if you have the fortune of being born into a very privileged position, you might be able to negotiate a higher X dollars per hour rate, or a better salary of Y per year, but it is still a fixed rate, and it still is capped off by how many hours you can physically perform work over the course of a day (or a week, or a year). So even if you are a super skilled, super hard worker who negotiated a good contract, you can still only ever grow your wealth arithmetically — in direct proportion to the time you put in. But overwhelmingly, that’s not how fortunes are made.
Now let’s talk about that other group in society — the much smaller and much more powerful one — the one with all the fortunes — the one that really gets to make use of those ‘bonus rules’ I mentioned. We remember, the PROLETARIAT primarily makes their money from doing work — that’s the defining characteristic of their class. That’s how they grow their wealth, that’s how they ‘make ends meet,’ and that’s how they exist in the world in relation to what they do. But we mentioned that there was a different, smaller group, the one that owns the means of production (the building, or the office, and equipment and the software, and the licenses, and all the related stuff required for the proletariat to do their work). This group, who Marx calls the BOURGEOISIE, grows their wealth (makes their money) in a very different way. Their wealth does not primarily come from doing work, nor is their income (mechanically) tied to their time investment, nor are they required to do any work/labour to be legally entitled to this income. Their money comes primarily from ownership claims. They make their money simply by owning things.
The bourgeoisie construct themselves a narrative about working hard for their money (not unlike medieval kings were certain that they had earned divine right from God) and overwhelmingly, it’s just that — their myth. Most of any rich person’s vast fortune accrues and swells and compounds overwhelmingly via ownership. The actual mechanics of how they get their money is all built in, right here, completely independent of whatever labour they may have contributed, completely independent of whatever the size or scale of risk that they take (if they took any at all), and completely independent of whatever capitalist innovation (ha!) was contributed — the system doesn’t care about any of that. The system only cares about who the owner is (indeed, when workers contribute additional labour, take risks themselves, or make innovations or contributions, they are not rewarded with partial ownership — or even rewarded at all by the system, only by the good graces of the bourgeoisie).
the Ownership Claim
In the old days is was the certificate they had that said ‘this factory belongs to me’ (or ‘me and my business partner’), and in more modern times, it’s divvied up a little differently with things like stocks and bonds — people with differing amounts of equity and portions of the total ownership claim. But the mechanics haven’t changed — owning 2% of the shares means that you get to collect 2% of the ownership claim payouts. And the money that the bourgeoisie make from their ownership claim — that money is made while they sleep and play golf. They are not required to work at the business. They are not required to know anything about the business. They might own a part of that business because “Jim Cramer said it was a good value” and that’s it. They might never set foot in the business they own, and they might even own hundreds or even thousands of these businesses that they have never seen. But nonetheless, every three months, they will get a cheque in the mail, paying them out on that ownership claim (often called a dividend), and would dispatch their own private litigators (supported by state enforcers and state arbiters) to retrieve it if it was ever not received.
To borrow from Big Bill Haywood, think of a coal mine for example. The owner doesn’t physically go into the mine and dig up the coal. He doesn’t run the local office and organize the labour. The owner lives thousands of miles away. The workers (the proletariat) are the ones that have to go to the mines and do all the digging, all the organizing, all the transportation, and all the selling to get finally turn the coal into money. Yet, because the bourgeoisie has a little sheet of paper that say he owns it, every three months he can expect that (often substantial) cheque in the mail paid out to him. He gets a (very large, rather significant) cut of everything that mine produced each quarter. But nonetheless, the bourgeoisie didn’t mine any coal. Capitalists love to say that “There’s no free lunch!” — except that there is — as long as you have enough wealth to belong to the ownership class — you can extract free lunches from actual working men and women for as long as you own property. The ownership class (the bourgeoisie) are free to sit back and watch the money grow.
And remember, this growth isn’t arithmetic, as it can grow quite a bit faster and is free to compound as much want. Indeed with ownership claims, you can experience exponential growth! All despite no labourer or worker (prole) being paid out exponentially for their time, and without the same level of growth required in the whole of the economy (this what what Thomas Piketty was on about — (R>G) — the total claims on ownership grow faster than the whole of the actual economy!). The owners are free to use the money made from one business to buy another. And then use the money from those businesses to buy more (it’s not necessarily a fixed rate like this, but you get the idea). Even in buying stocks or bonds, the same mechanic is at work — indeed, think of the thick Western investing-upper-middle class, they see themselves as creating themselves passive income — as if the labour to provide their goods and services is done passively! But as any Marxist knows, there is no such thing as passive income — they are simply extending their claims on ownership over the labours of others around the world, who will no doubt have to toil and labour that much more to satisfy and maintain the targeted quarterly growth of the stock.
If a member of the bourgeoisie has sufficient capital, they can go their entire life without ever being required to put in a day’s labour for their income. They can lay back and let the ownership claims accumulate (indeed, there’s a reason why nearly all the wealthiest families of Europe are still intact — not for Robespierre’s lack of trying). It’s not the poor and powerless who are leeches — it’s the wealthy who are the parasites. Successful parasites, at that, as they have convinced much of the proletariat that they are benefactors, rather than extractors! But where does that money come from, exactly? Well, that money is the money made by the workers less what the bourgeoisie owners paying them (only pay a fractional portion back to the people who did all the labour to make the money in the first place) through those salaries, wages, etc. Let’s take a closer look at what exactly is the mechanic (the system) going on over at the means of production, that makes this possible?
There’s a running joke among communists (well Althusser used it) that before a worker can go to bed and get up for work the next day, they must first have their beer (or wine for the French). And without that — if their job could not pay them enough to buy beer — then no more work would be done! That is to say, that there is an ‘upkeep cost’ for each days worth of work — some of the money made has to go to this expenditure on beer, or else all the work stops. The worker-beer relation is a joke, but what it attempts to illustrate is (a portion of) the necessary labour for reproduction of the system (wut? — hang on).
Let us take a proletarian shoemaker (pronoun: they), working for a bourgeois shoe shop owner, making shoes in his shop (while he tries to make par on the back nine). Let us assume that the shoemaker works for 8 hours a day, and during one hour, they can produce one pair of shoes, which they sell at the storefront for $20 per pair (assume the time to sell the pair is included in the one hour). So over the course of an entire day, the shoemaker will produce eight pairs of shoes, and (hopefully) sell them all for a grand total of $160. But the proletariat will not take home this $160 — far from it!
Of course not, you say, as already mentioned, the worker will not return to work without beer, but neither can shoes be made without new inputs (new materials) from which to make the shoes. Before a new days worth of shoes can be made, a number of inputs must first be paid. The materials needed for the shoes (leather, shoelaces, etc), but also all of the other necessary inputs and materials required in order to make a new days worth of shoes. This would include: the materials for the shoes, the upkeep for the store (one day’s rent), the upkeep for the electricity and other utilities (worker’s gotta pee), the tools or machinery that the worker uses (tools might break and need to be replaced, even if it’s rare, you can still divide the cost proportionally over all the shoe pairs made before having to buy a new tool), the shipping requirements, the packaging, etc. Without those components, there would be no starting point to make and sell the shoes. All of these things are needed (necessary) to reproduce the system from the day before. Now if the cost of all those components together exceeded the total price of all the shoes that could be sold in a day, then the shoe store owner would need to start charging more per shoe, or be out of business quickly. In our example, we shall say that the cost of all these materials and upkeeps is $30, and this will provide our proletariat worker with all that they need to make another day’s worth of shoes. But the worker has not yet had their beer, nor can they, as they have not been paid yet.
And herein is where the knot between the means of production, the bourgeoisie, the proletariat, and the prole’s labour are all tied together. To return to our shoemaker, after they have the $30 worth of materials, they then can get to work on their task — the making of the shoe. If the bourgeois owner was to pay the worker $16.25 per hour, then over the course of the 8 hour day they would make and sell eight pairs of shoes (for $20 each) making a total of $160. From that, $30 would be set aside for the next days expenses, and the proletariat would walk home with $130. But then the owner (who spent the day playing golf) would have nothing. So he will necessarily pay his worker much less than this. If we go quite a bit in the other direction (indeed, much like it looks in our world), the owner was instead to pay the worker only, say, $5 per hour, then the worker would take home a meager $40 at the end of the day (enough for beer and groceries and rent but not much else), while the owner (who again, spent the day golfing) would take home $90. Enough to hire another worker ($30 new materials + $40 day labour / this is a slight oversimplification but it illustrates the point) with $20 to spare!
So our shoemaker is making their own wage — and then some over the course of a day, but only being allowed to keep a portion of their total labours. If we take the labour hours that they need to put in for the materials (1.5 hours to make $30) and add it to the labour to pay the wage (2 hours to make $40), then we can add these components together and call this the necessary labour time. This is the time spent working (doing labour) that the worker will have to do just to create the conditions for them to do another day’s work for their bourgeoisie employer. If they don’t get that 3.5 hours of labour done, then the boss wont be able to produce the conditions tomorrow (or he could, rather, but it would be at a loss, and that would undermine the purpose of his ownership — no doubt he would in a temporary shortfall, but if the long term trend is down, the entire venture will be abandoned). Indeed, the term wage-slave is making a comeback after 100 years, pointing out exactly this unfortunate fact. That many of the bourgeois ownership class view employees as ‘rent-a-slaves,’ who, as long as they have made the appropriate wage payment, expect the proletariat to serve as their slave for the duration of the time remaining on the clock. “If you got time to lean, you got time to clean.” Bringing the question, what about the rest of those 8 hours?
Surplus Labour and Surplus Value
These remaining 4.5 hours of the day, in which the shoemakers spends making shoes, while the owner golfs, are what Marx calls the surplus labour, which is labour that the proletariat has done to the benefit of the owner, rather than themselves. This surplus labour is spent creating surplus value — that is value (something tangible produced from doing labour) which the prole has produced, but does not get to keep or see realized. Instead, according to those ‘bonus rules’ — the property relations, it all belongs to the bourgeois owner.
This “extra” that the capitalist extracts from the worker will vary in scale and ratio from business to business, but it’s the share of the work that the worker completed, that didn’t get reinvested back into production, but that the worker also didn’t get to keep. The owner takes it home instead. Now take a step back for a moment, and think of the major businesses in the world — the really influential ones, not just the local small business shop with a couple of employees (not that those are particularly noble — indeed many small businesses can be just as cutthroat and ruthless as conglomerates). These massive businesses employ thousands, millions in some cases, and have only a few hundred to a few thousand (or fewer in some cases) relevant shareholders/owners each with a sizable portion of the ownership claim, who are all getting a cut of all that surplus labour of many, many more people layers deep beneath them. This is exponential growth.
Now consider all the ever-growing debts in the world (and remember that a debt it a claim on future labour) — work that is owed to this ownership class who holds the claim on the debts. When the ownership claims grow faster than the economy, the only place to extend those claims is into the future. Hence, that future work that will have to be done by us, the proletariat, for them, the bourgeoisie. And while the principle on most debts has already been repaid (many times over in a great many cases), the debt interest grows exponentially, almost always faster than the arithmetic ability for them to be repaid. Work that isn’t even done yet belongs to the modern bourgeoisie — our futures have already been sold. Indeed, at the rate we are going, it wont be long before we find out that we owe multiple futures to the bourgeoisie.
So what is socialism?
The issue remains exploitation — that the surplus value has been stolen from us, the proletariat. Just as the labour of slaves had been stolen by their masters, and the labour of serfs had been stolen by their kings, so too is the labour of the proletariat stolen by capitalists! So if you are wondering if the conclusion of this essay is — so this is why the world is so messed up? The short answer is yes, and the long answer is “ it actually gets much worse than this” but that will wait for another time. For now we are still discussing the property relations at the base of society (I bet it’s less wut? this time).
The property relations imposed on the proletariat by the bourgeoisie exist to benefit the bourgeoisie, and allow them to exploit the proletariat. This isn’t some natural state of affairs, either. It is a system that is actively upheld by force, both at home and around the world (what we Marxists call Imperialism and finance capitalism —the “much worse” topic for another day). At home, if you don’t submit your rent to the landlord, you are forcibly removed from your home by the bourgeois-controlled state and their enforcers. If you don’t have enough money, you are denied food from the bourgeois owned store (even as they throw 40% of their food to waste). The old historical property relations, in days gone by, said that it was the king who got paid out in a special manner (got to keep a portion of the labour of the serfs), and the slavers before that (got to keep nearly all of the labour of the slave). Indeed, it’s the class with the “upper hand” as Marx puts it, who makes the rules. The bourgeoisie say it’s their means of production (as opposed to ours, or the worker’s, or society’s), so they are obligated to keep the money, despite that they do not work it. Nor was there any way for them to accrue such vast enterprises as the megacorporations we see today, except through further continued exploitation of our (proletariat) labour. These property relations are so fundamental to capitalist society, that even talk of changing it is barred from discourse. Indeed, Marx calls this the base, because it’s the ground upon which all the other institutions, constructs, and parts of society are built upon, and in changing or overturning this base (in a REVOLUTION!), so too will all the superstructure end up transformed along with it.
So what is socialism, then? Socialism is the end of this division of classes over property rights, as the proletariat (the workers) seize control of the means of production from the hands of the owners. The proletariat overthrow the bourgeoisie and end the property relations imposed by their class. Property would belong to all of society and be used in a way decided upon by that society (and there’s lots of ideas about what this has, and can, and could look like), rather than allowing the decisions of society to continue being made by the ownership claim holders (who only ever make the decisions that make them the most money — leading us and our planet to ruin). But how can the proletariat bring about socialism?
Workers of the world unite — you have nothing to lose but your chains! And you have a world to win.